Proprietary trading associations (CPAI and ISF) are seeking a new framework to distinguish liquidity providers from speculators to lobby the RBI for lower bank guarantee requirements
GS3Economy · S&T · Environment · Security· Capital markets & SEBI· Mains·
Why in news
Proprietary trading associations (CPAI and ISF) are seeking a new framework to distinguish liquidity providers from speculators to lobby the RBI for lower bank guarantee requirements.
Background
The CPAI and ISF are collaborating to propose a framework to the RBI. Currently, the RBI mandates that banks extend guarantees only up to the value of collateral provided by capital market intermediaries (CMIs) engaged in proprietary trading.
Facts for Prelims
- BodyCPAI: Capital Products Association of India
- FactRBI mandate: Bank guarantees for CMIs are currently capped at the value of provided collateral
For Mains
Q. Discuss how distinguishing between liquidity providers and speculators can enhance market depth and efficiency in India's capital markets.
Dimensions to cover in your answer
- Market liquidity: Balancing the role of market makers against speculative risks to ensure price discovery
- Regulatory friction: Balancing RBI's risk-mitigation mandates with the need for high-volume trading by intermediaries
Keywords: Liquidity provision · Proprietary trading · Capital market intermediaries · Risk mitigation · Market depth
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